Delta, Northwest: Pensions Could Trigger Bankruptcy

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Delta and Northwest airlines have told Congress that their pension-contribution obligations could drive them into bankruptcy. But some senators want to tighten funding rules that have allowed companies to avoid contributions and underfund their pensions by billions of dollars.


The business news starts with the trouble in airline pensions. Two major airlines told Congress yesterday they might go bankrupt if they cannot put off contributions to their pension plans. NPR's Frank Langfitt reports.


When United Airlines went bankrupt, its pension plan was underfunded by nearly $10 billion. The government's pension insurer, the Pension Benefit Guaranty Corporation, or PBGC, took over the carrier's obligations. But more companies are underfunding their pensions and the PBGC is running $23 billion in the red.

Republican Senator Chuck Grassley chairs the Senate Finance Committee. At a hearing, he said Congress has to reform the funding rules. He said the current system allows companies to make their pension plans appear stronger than they really are.

Senator CHUCK GRASSLEY (Republican, Iowa): As the stock market plummeted in 2000, 2001, 2002, United used the techniques to make their pension plans look like the late '90s stock market boom had never ended. This meant that the plans were not only deteriorating rapidly, it also meant that United was not required to make additional contributions because on paper, everything looked OK.

LANGFITT: But airlines like Delta and Northwest want to pay less now and extend payments into the future.

Competition in the airline industry is brutal. The carriers told Grassley's committee that forcing them to pay now could push them over the edge. Douglas Steenland is Northwest's president.

Mr. DOUGLAS STEENLAND (President, Northwest Airlines): Today Northwest and other airlines' defined benefit plans are in critical condition. As you know, both United and US Airways have already terminated their defined benefit plans in bankruptcy and transferred them to the PBGC. Absent immediate action by the Congress, the defined benefit plans at Northwest and at other carriers may very well suffer the same fate.

LANGFITT: The Bush administration is pressing to make companies pay more into their pension plans earlier. Congress is expected to take up the legislation soon.

Frank Langfitt, NPR News.

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